The organic growth of index-based products has led to recent asset growth, with assets in index-based products such as exchange-traded funds (ETFs), mutual funds, and direct indexing separately managed accounts crossing $16 trillion as of year-end 2024. As index-based products see continued demand, index methodology—alongside cost, performance, and brand—is becoming crucial to financial advisors. Accordingly, asset and wealth managers consider index construction as a means to differentiate their products, according to new research issued by Cerulli Associates and sponsored by S&P Dow Jones Indices.

According to the new research, financial advisors with at least 10% of their client assets invested in ETFs expect to allocate 49% of total assets to index-based strategies in the next two years, up from 46% in 2024. Advisors consider the quality of index design (82%), brand (56%), and index data resources (52%) as the top-three factors when reviewing an index for an ETF product.

Despite offering the intellectual property that index-based investment products seek to replicate or track, Cerulli’s executive interviews with asset managers and wealth manager home offices found that index providers' offerings are often underutilized.

Cerulli expects the opportunity for asset and wealth managers to leverage index provider services that support the underlying index (e.g., consultation during the product development process, thought leadership, coordinated advisor engagement and education meetings) to increase based on the below identified strategies. “Simply licensing index data underutilizes the available resources that come from an index provider,” says Brendan Powers, director.

As the market becomes increasingly saturated with index-based products, the recently published white paper finds that asset and wealth management firms should consider how they can leverage index providers' solutions to differentiate themselves. Strategies include:

• Going Beyond Index Data: Asset and wealth managers can take advantage of index providers’ additional offerings, in support of the underlying indices, including consultation during the product development process, white label and custom index creation, thought leadership and educational content, and coordinated advisor engagement and educational meetings.

• Leveraging Brand and Content Strength for Product Marketing and Distribution: The index provider brands, especially those built upon high-quality index design and methodology, are often additive to an asset manager’s brand, strengthening the overall positioning of the product.

• Enhancing Intelligence for Asset Allocation Model Portfolio Construction: While the data (e.g., index performance data, factor analyses) available has improved in recent years, there is still an opportunity for firms to improve the depth of coverage (incorporating fixed income, international equities, and alternatives) and improve access and delivery.

Asset and wealth management executives must continue assessing and refining their investment products and solutions as financial advisors increasingly adopt index-based solutions in their portfolio construction process. “An ideal index-based solution will improve competitive positioning and provide more valuable products and services to financial advisors and end-investors,” concludes Powers.

For S&P Dow Jones Indices’ information/disclaimers, visit: www.spglobal.com/spdji/en/disclaimers/